Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Yin Wilczek
Sept. 22 — In its largest reward to date, the Securities and Exchange Commission Sept. 22 announced that it awarded more than $30 million to a foreign whistle-blower who helped the agency unveil an ongoing fraud.
In an order, the SEC said that, given the monetary sanctions collected from its enforcement action so far, the whistle-blower should receive a total award of between $30 million to $35 million.
The award “shows the international breadth of our whistleblower program,” Sean McKessy, chief of the SEC's Whistleblower Office, said in a release. “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
The SEC's order was heavily redacted to protect the whistle-blower's identity. In a footnote, the agency said it believed an award was appropriate “notwithstanding the existence of certain extraterritorial aspects of Claimant's application.”
“In our view, there is a sufficient U.S. territorial nexus whenever a claimant's information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations,” the footnote said. “When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.”
The SEC also noted in its order that the reward was adjusted downward because the whistle-blower's delay in reporting the perceived violations was “unreasonable.” However, given that some of the delay occurred before Dodd-Frank established the SEC's whistle-blower program, “we have determined in our discretion not to apply the unreasonable delay consideration as severely here as we otherwise might have done had the delay occurred entirely after the program's creation,” the order states.
Separately, the law firm of Phillips & Cohen LLP said in a Sept. 22 release that it represented the whistle-blower at issue.
“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” Washington-based Phillips & Cohen partner Erika Kelton said in the release. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”
The law firm release confirmed that the whistle-blower is a foreign citizen.
Meanwhile, attorneys who represent whistle-blowers said both the size of the award and the rewarding of a foreign claimant will boost the SEC's bounty program.
The SEC's previous largest-ever reward—$14 million awarded in October 2013—resulted in a spike in the program, said Jordan Thomas, a Washington-based Labaton Sucharow LLP partner who chairs the firm's Whistleblower Representation Practice. “I would expect a similar spike with the announcement of” this reward, he told Bloomberg BNA.
The SEC's highlighting of the international aspects of its latest reward will increase the level of participation by foreign tipsters, Thomas said. The message will reach some individuals “who have heard about the SEC's whistle-blower program but didn't know foreign nationals could participate.”
Jason Knott, a Zuckerman Spaeder LLP partner in Washington who focuses on business and employment issues, also suggested that the latest reward will encourage employees—particularly ones in foreign countries—to report misconduct to the SEC rather than internally to their employers.
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
To contact the editor responsible for this story: Phyllis Diamond at mailto:%firstname.lastname@example.org
The SEC's release is available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543011290#.VCBVKBbIk75.
The SEC's order is available at http://www.sec.gov/rules/other/2014/34-73174.pdf.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)